5 Reasons To Write A Business Plan

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I would encourage anyone planning to start up a new business to invest some time in creating a Business Plan first. There are many different things you need to consider before starting a business and going through the business planning process is the best way to ensure that you have really thought through everything you need to. A little time up front can save a lot of grief later on and greatly increase the chances of your business being successful.

RELATED: Guide To Writing A Business Plan

Here are my 5 top reasons why you should write a Business Plan.

1. To Show You Are Serious

By writing a Business Plan you are demonstrating that you have properly thought through every aspect of your idea and the plan itself shows exactly how your business will work and why it will be successful. The fact that you can demonstrate through your plan why there will be a demand for your product or service, who your customers will be and why they will buy what you are offering, puts you a big step ahead of someone who just thinks they have a great idea.

This is important if you need to attract investors, partners and even employees and managers to work with you. All of these will need to have good reason to risk their money or their livelihood with you, and your Business Plan can help give them the confidence and assurance they need.

2. To Spell Out How Your Business Finances Will Work

An essential part of your Business Plan will be financial projections. The rest of your plan will ultimately all feed into your projections for income and expenditure during the first years of your business. This will help ensure you (and others) have a clear understanding of where your revenue comes from, what your sales targets will be and any cash flow issues that you need to address.

This work should also show whether any capital investment is required to start the business and identify any times when funding will be required to cover periods of negative cash flow. This information will be vital in attracting any investors or partners. The future viability of your business could depend on being properly prepared in terms of cash flow, as this is what kills many small businesses which are otherwise perfectly profitable and viable.

3. To Ensure You Understand Your Customers and Competition

You may think you have a fantastic idea, but if no-one is interested in buying what you are offering, or if they can get it cheaper or better elsewhere, you don’t have a business. An absolutely crucial part of the business planning process is to identify who your potential customers are and who your competitors are. You then need to be able to clearly show why these people will become your customers. You do this by providing evidence that there is demand for your product and that you can provide something that that will make people choose you instead of your competitors.

You do not know if your business is truly viable until you undertake this work. You also need to show a clear understanding of any trends in your industry or changes in the marketplace. How big is the potential market and is it growing or shrinking?

4. To Spot Potential Problems In Advance

Writing a structured plan forces you to properly challenge any assumptions you have made and can bring to light potential issues that you may not have considered before. By facing up to these things in the planning process, you can identify ways to avoid or deal with them so that they do not become unforeseen problems when your business is up and running.

The flip side of this is that the planning process can also identify new opportunities and whole areas of business that you may not have considered before.

5. To Measure Progress And Keep You On Track

A good Business Plan is something you can refer to when your business is up and running to ensure you are not losing focus or getting side-tracked into areas you had not intended being involved in. By setting out financial targets and key milestones in advance, you can measure your actual performance against these to see how you are progressing.

Your Business Plan spells out exactly what you want to achieve in your business, so referring back to it can help ensure you are focusing your efforts in the right areas.

Further Reading

The Resources section of this site provides a step by step guide to writing a business plan, and other resources for small businesses.

8 Ways To Ensure Success For Your New Business

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You are no doubt aware that most new businesses fail, so you need to do all you can to ensure that yours will not be one of them. Sometimes great business ideas do not succeed because of a lack of attention to a few key practical areas. By paying attention to the following you can make sure you give your new businesses every chance of success in the long term.

1. Plan Before You Start

The best way to get to grips with all the things you are going to have to do in order to get your business off to a good start is to create a proper Business Plan. This is not just something you put together to persuade investors to come on board, it is primarily a tool to help ensure that you understand every aspect of what you are about to do, making it far less likely that you will be knocked off course by the unexpected. Make sure that a good accountant is part of your planning so that you properly consider things like tax liability, VAT and company structure.

2. Understand Your Finances

You can’t leave financial matters entirely up to your accountant. As the business owner you must understand and be responsible for how your business works financially. Unless you really know what is going on, you are not going to be able to prepare a realistic cash flow forecast, and if you don’t do that you are not going to know whether you need to borrow money, when you need it or for how long. Get this under your belt and take steps to secure the funding you need to cover the times when you may need a cash injection. Cash flow problems are the thing most likely to kill off your business, so knowing when you are going to need cash and making sure you have it in place is vital.

3. Put Agreements In Writing

You are almost certainly going to be relying on various other companies and individuals to provide goods or services that you need in order to carry out your own business. Do not be tempted to be too casual about such vitally important arrangements. Where appropriate use proper contracts, but always confirm everything in writing, paying attention to the detail. When everything is going well it can seem like an unnecessary waste of time, but you have to consider what could happen further down the line if you are not getting what you were promised and when relationships are no longer so rosy.

4. Keep It Lean And Mean

When you are starting up it is wise to try to keep your commitments to those that you can get rid of easily if you need to. Avoid being a direct employer if you can use a freelance person or outsource the function instead. If you suffer a drop in turnover and need to reduce your overheads you need to be able to react quickly to avoid financial problems. Work in partnership if you can and look at ways to share responsibilities with other companies.

5. Spend As Little As Possible On Premises

The type of premises you require will depend to a great extent on the nature of your business, but take care not to commit to fancy or large premises if you could manage without. Ideally you should work from home if your business allows. If you need to meet people you can always go out to them or hire meeting rooms locally if you really need to. Spending money on occasional meeting space is far less costly than the ongoing overhead of having your own premises. You can expand and improve your premises as your business grows. Keep the two things in proportion.

6. Give Some Thought To Health And Safety

Not exactly the thing that gets you out of bed in the morning (unless your business idea is to do with health and safety of course), but this is an area where you must at least have some awareness of your responsibilities as an employer and business owner. Working for yourself at home, this is going to be no problem, but if you have premises, employ staff, have hazardous materials on site or engage in potentially dangerous processes, then you must take is seriously and may need professional input.

7. Take Out Appropriate Insurance

Insurance may not excite you, but not having it could put you out of business. Some insurance, such as employers’ liability, is compulsory, whereas other types of business insurance are a matter of protecting yourself against claims that could damage the viability of your business. Public liability cover is the most obvious one and this is to defend you against claims by any third party for injury or damages. This is particularly important if you have clients or members of the public on your premises, or if you or your staff work on other people’s property. Other options include stock cover, fixtures and fittings, building and contents insurance and professional indemnity.

8. Build Relationships And Networks

Networking is not only a good way to generate leads and new business, but can be a great source of keeping up to date with other issues and developments that can affect your business. The more people in your local area or in your market sector that you have good relationships with, the more options you have for calling in favours or getting help or special deals if you ever need to. People running any sort of business will encounter the same problems that you do, and having people that you can bounce problems and ideas off can be a great help too.

Photo Credit: Business Graph

Ten Steps To Creating A Business Plan For A New Business

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Any Business Plan should contain the same key elements, but a startup business will require a particular focus in certain areas. If you are setting up a new business, your business plan is likely to be a vital tool when seeking investors or funding, so it must be well researched and present a solid business case.

By splitting your business plan into 10 key sections you can outline all the key areas that any investor will want to know about how your business will work. These 10 sections can be summarised as follows:

1.Contact Information and Executive Summary

First things first – make it obvious whose plan this is by putting your business and personal contact details right at the beginning. This should be followed by an Executive Summary, which has to summarise the rest of the plan and give an overview of how your business will work. Get this right, because if it does not engage the reader, they may not bother looking any further. You will almost certainly have to write this section after you have completed all the other parts of your plan.

You could also include an elevator pitch in this section. The term elevator pitch comes from the idea that it is what you would say in the time available if you met someone by chance in an elevator. It is a useful exercise to really focus on the essence of your business idea so that you can explain it in no more than a minute or two.

2. Background Information

Use this section to provide information about yourself and any other key personnel who will be involved in the business. Investors will want to know who they are backing, so you need to provide information about your relevant work experience, qualifications, etc. Provide CVs as an Appendix so as not to clutter up the main plan.

3. The Product/Service

Now we get to the guts of your business – what is it you are selling? As well as explaining what product or service you are providing, you need to say something about what makes is special. What is your unique selling point? Why are you going to succeed? Is this different to what anyone else is offering, or are you going to do it better than anyone else?

4. Your Customers

The quality or uniqueness of your product has no value at all unless someone wants it enough to part with their hard earned cash. This section is crucial in explaining who your customers are and why they are going to buy what you are offering. Are you selling to businesses or individuals? Perhaps you are selling to both. Either way, you need to identify these customers clearly. Who are they, where are they, how old are they, what do they do, etc.

5. Your Competitors

Any investor will want to be satisfied that you understand what the competition is doing and that you have a clear plan for beating them. Make a table of your main competitors, giving details of where they are located, how big they are, their pricing structure and what their strengths and weaknesses are.

6. Market Research

Making statements about your customers, the sector you are operating in and the size of the market place are meaningless if you have not properly researched the facts. As well as desktop research about the size of the market, current trends, etc., you need to do some specific market research to provide evidence that people really will use your business. Nothing has more value than actual sales or orders, but failing that, you need to have conducted reliable research and have feedback from your potential customers to show that there really is a need for what you are offering.

7. SWOT Analysis

This is a standard analysis of your business or idea to identify key points in the four areas of Strengths, Weaknesses, Opportunities and Threats. You only need a few bullet points under each heading, but be honest about it. When you identify potential issues under threats and weaknesses, always make sure you also include an explanation of what you will do in order to mitigate against these.

8. Marketing

You must have a clear plan of how you are going to communicate the message about your product or service to the people who will be your customers. Make headings for each type of marketing activity you will be undertaking and provide relevant details including costs. These can include direct sales, producing a website, online advertising, adverts in publications, direct mailing, attending trade shows, brochures and leaflets, social media, etc.

9. Logistics

Now you have to explain how you will do all the day to day stuff that is involved in your normal operation once you are up and running. You need to cover premises (where, why and costs), manufacturing equipment, office equipment, insurances, invoicing and payment systems, delivery and transport and something about staff management and the structure of your team.

10. Financial Forecasts

Last but most definitely not least, this section can include various details, but the key thing is a forecast of profit and loss over the next few years. Investors will want to know what sales you expect to make, what your costs are and what your profit is over time. You must be as realistic as you can with this. It can be hard to do forecasts when there is no track record, but just make sure you can back up any assumptions you have made with evidence or strong rationale.

You can read a full and detailed guide on How To Write A Business Plan in the Resources section of this website and download a free budget forecast spreadsheet.